It is well known that I don’t think much of the ability of government officials to correctly forecast much of anything. Alan Greenspan and Ben Bernanke have made famously clueless predictions with respect to stock and housing bubbles, and rank and file Fed economists have consistently overestimated the strength of the economy ever since their forecasts became public in 2008 (see my previous article on the subject). But there is one former Fed and White House economist who has a slightly better track record…which is really not saying much. Over his public and private career, former Fed Governor and Bush-era White House Chief Economist Larry Lindsey actually got a few things right.
Back in the late 1990s, Lindsey was one of the few Fed governors to warn about a pending stock bubble, and to suggest that forecasts for future growth in corporate earnings were wildly optimistic. He also famously predicted that the cost of the 2003 Iraq invasion would greatly exceed the $50 billion promised by then Secretary of Defense Donald Rumsfeld, a dissent that ultimately cost him his White House position. (But even Lindsey’s $100-$200 billion forecast proved way too conservative – the final price of the invasion and occupation is expected to exceed $2 trillion).
A typical Peter Schiff gold forecast points to mounting government debt and "money printing" as evidence that someday, the fiat money system will be upended. At that point, people will pour into gold to stave off the rapid deceleration of the U.S. dollar's value.
A skeptic's typical Peter Schiff gold rebuttal will consist of questioning why, after U.S. debt has reached $18.3 trillion and the U.S. Federal Reserve has pumped $2.4 trillion in the banking system through three rounds of quantitative easing, the dollar is still stronger than it's been in recent history.
Quantitative easing is the process by which the Fed buys bank assets and credits them with newly created reserves in an attempt to bring down interest rates. But QE by itself is not an inflationary policy.
The reason why inflation, or hyperinflation for that matter, hasn't happened yet is that the U.S. economy hasn't entirely shrugged off the effects of a so-called "balance sheet recession."
In a balance sheet recession, households and firms use extra money to pay down debt, as opposed to making purchases on consumer goods. The classic definition of inflation as "too many dollars chasing too few goods" breaks down when the economy is not "chasing goods." Instead it's redirecting that money to reduce debt.
When there simply isn't enough economic activity and consumer loan demand is stifled, no amount of quantitative easing or government spending is going to get money moving around in a way that stokes inflation/hyperinflation.
But, there is another more sinister force brewing beneath all these policies that can help explain why gold is a valuable portfolio builder…
Recent Peter Schiff gold forecasts predict the metal's rapid rise to a five-figure price tag -$13,000 long term, according to his gold investing blog. Schiff says the gold-price driver will be a hyperinflationary episode brought on by easy money.
Peter Schiff gold price predictions like this are typically predicated on gloom-and-doom forecasts of a dollar collapse and a financial meltdown.
This take on gold investing tends to attract skeptics. The gold skeptics are so dead-set on discrediting this caricature of gold investing – brought on by the Peter Schiff gold investing thesis – that they write gold off altogether as an asset for the paranoid investor.
This polarizes the investing world between gold bugs who think an economic collapse is imminent and gold bears who think the gold bugs are scare-mongering demagogues.
The truth about why gold matters lies somewhere in between.
You don't have to agree 100% with Peter Schiff gold predictions to appreciate the yellow metal's value. Regardless of which "side" you're on, gold is an important part of a portfolio.
Recently Peter Schiff visited Mike Maloney in California. During his stay they filmed nearly 3 hours of discussions about gold, silver, freedom, and the economy in general. Over the next few weeks we’ll be publishing a series of these videos to our YouTube channel so make sure you are subscribed as this analysis is not to be missed. In this second installment, Mike and Peter discuss whether gold is overvalued or undervalued.
